This week I was asked to give suggestions on how to collect outstanding money (debt) from a client without causing too much damage to the working relationship.  I have a client whose wife does the bookkeeping for her his business and they have one client who hasn’t made payment of their outstanding debt for quite some time.  My client’s wife decided to take on the role of debt collector but has been unsuccessful; she said that she felt that the client was seeing her as the ‘nagging’ wife and not respecting her as the bookkeeper.

I have seen this happen quite often and people not paying is sadly becoming more and more regular as well.  It is often the case that you have a great working relationship with the client and value their business, but they don’t pay you.  Often when you have these relationships you understand their business enough to know if they are actually just being horrible and not paying, or if they are having financial difficulties and can’t pay.

Following are my tips to successfully collecting outstanding money that is owed to you.  But before I go any further you need to be aware that there are regulations for contacting your customers for overdue payments.  Please refer to the Consumer Affairs Victoria banned practices for debt collection list for more information.

1. Trading Terms and Conditions – It is important to have a Trading Terms and Conditions written up and distributed to all new and existing clients.  If your business has cash sales as well as accounts as part of your income, everyone who you create an account for should receive a copy of your trading terms.  You should also have a copy of your trading terms and conditions displayed in your shop/office.
2. Send Monthly Statements – you would be surprised how many people don’t pay their accounts on invoices, they wait till a statement comes at the end of the month, and then wait till the end of the following month before paying, regardless of what your terms are.  If your trading terms are 14 days, then you need to be sending a statement at the 14 day mark.  If you email statements, email statements on a weekly basis so you can keep in front of the client.  Don’t ever miss sending a statement at the end of the month, I would suggest that you email them AND post them, as it is too easy to claim they didn’t get receive it if you only used one method.  Also make sure that your statement has your banking details and contact details on it so that they can pay you quickly.
3. Make a phone call – it is quite common to come across people who won’t pay until you have rung them and asked them for payment of their account.  It’s like they don’t think you are serious about wanting to get paid unless you ring them.  If you have a bookkeeper, or your wife does the bookkeeping, then it is always a good idea to get them to ring on your behalf.  All they have to say is:Hi, its ___________, from _________, I’m just following up on payment of invoice ________.  It appears that you have missed paying it.  When will this be paid by?
4. Follow up with an email – when you have made the above phone call, it is always a good idea to follow this up with an email ‘confirming’ the conversation.Hi _______, just confirming our conversation from today.  You have agreed to make payment of $_____ being the outstanding amount from __________ on ______________.  If payment of this amount is not received I will be following up. Please also find attached a copy of our trading terms for you to peruse.  Thank you for your cooperation. Kind Regards ___________
5. Personally ring them – If the payment hasn’t been made by the agreed time then I would suggest that the business owner or the person who made the sale ring the client direct, they can say something like:Hi, its ____________ from ___________, my accounts department has brought to my attention that you haven’t paid your outstanding account from ___________.  It appears that you agreed to pay it by _________ and it still hasn’t been done, so is there any reason this hasn’t been paid? Here you can also explain to them that you have trading terms and conditions as a way of communicating with them the process of your fee collection policy.  This was supplied to them at the commencement of your work with them and also in the email you have sent them in step 4.  You will need to explain to them that you cannot continue to work with them while payment is outside of your trading terms.

At this stage payment should be made, as the person will be totally mortified that you have had to ring them personally.  IF for some reason they still don’t pay then you will have to hand the matter over to a Debt Collection Agency.  PLEASE do not wait too long to do this, having a good working relationship with a client is great, but having them disrespect you and not pay you what you have invoiced them is not a good idea.

Question: What debt collection methods have you used in the past to collect outstanding monies?